Recognising friendly countries’ aid fatigue that may lead to an untenable situation sooner or later, the government is trying to improve the inflows of direct foreign investment (FDI) to reduce external sector pressure.

And latest developments indicate that some Asian countries are looking fresh at opportunities for investment in Pakistan. These include Japan, Qatar, Saudi Arabia and the United Arab Emirates (UAE). While the current foreign capital spending is meagre, the unrealised potential for expanding economic relations with Asian countries is enormous given the right environment for businesses, say, both foreign and domestic investors.

Current foreign investment trends show notable diversity, such as low volumes, widening sources of FDI inflows and dispersal of foreign stakes in an increasing number of companies. In FY22, foreign investment from 64 countries from all continents was recorded in 672 new companies registered with the Securities Commission of Pakistan (SECP) against 54 states with foreign investment in 529 firms in FY21.

FDI increased 2.6 per cent to $1.87 billion in FY22, but it was lower than $2.06bn in FY20 and $2.23bn in FY19. Foreign companies also reinvest retained earnings in the expansion of local businesses. For example, the Overseas Investors Chamber of Commerce and Industry says its members have invested $21bn over the last 10 years.

In FY22, foreign investment from 64 countries was recorded in 672 new companies against 54 countries in 529 firms in FY21, indicating diversity

Of the total 26,502 firms registered (a year-on-year increase of 4pc), nearly 64pc companies were private limited companies and 33pc were single member companies. Only 3pc were registered as unlisted public companies, foreign companies, not-for-profit associations and limited liability partnerships.

Sector-wise real estate development and construction sector led the new incorporations with 4,791 firms, followed by information technology with 3,760 new companies and trading with 3,534 new firms. The number of IT firms is increasing fast.

Finance Minister Miftah Ismail said on September 18 that about $5bn in investments from Qatar, Saudi Arabia and UAE would materialise in the current fiscal year. Qatar, which has pledged $3bn, is looking at long-term leases of three airports — Karachi, Islamabad and Lahore. It is also looking at buying two LNG-fired power plants. If the $3bn investment is not reached by the close of the financial year, the remaining amount will be invested in the stock market.

The Saudi king has assured Prime Minister Shabaz Sharif that $1bn will be invested before December. And finally, UAE’s $1bn investment will ‘definitely materialise’ in the next few months in the form of share purchases of listed companies, says the finance minister.

Apparently, if the $5b investment does materialise within the stipulated time, it would help ease the external pressures briefly but would not create any new capacity and may or may not improve existing facilities for production. The creation of new capacities does not seem to be on the agenda. Only in the case of Qatar the running businesses for lease/sale are identified for investment, possibly for early materialisation, unless not much hassle is involved in the deals.

In a discourse on the government’s priority to boost economic and business activities through foreign investment, Federal Secretary for Board of Investment Asad Rehman Gillani said that the prime minister has directed relevant authorities to remove all hurdles coming in the way of FDI.

The procedures, rules, and regulations for setting up industries in Special Economic Zones (SEZ) and promoting FDI are being made easier. The business community would be taken on board once the draft is ready for consultation. Currently, SEZs have a 10-year tax holiday and machinery can be imported tax-free. And the one-window facility offered for required infrastructure is expected to cut bureaucratic red tape.

The Board of Investment (BOI) and Japanese authorities have jointly organised a seminar on September 30. The BOI chairman and heads of its regional offices will update the 250 strong members of the visiting Japanese delegation on the latest business climate and investment potential in the country’s four provinces.

But it is time to go beyond identifying sectors with potential investments and prepare a list of possible joint venture projects in consultation with stakeholders from both sides. The focus has to be on specific proposals, as in the case of Qatar. The seminar would be more productive and meaningful if the potential joint venture partners discuss concrete proposals.

A similar approach should be adopted by the Pakistani delegation, which will visit Saudi Arabia on October 29-30, as the Saudi businessmen, officials say, are keen to step into joint ventures with their counterparts in Pakistan.

Joint ventures should be the first choice of foreign investors to benefit from the intimate knowledge of local investors about the complex issues involved in FDI in the current challenging situation. Despite sharp divergent views on superfluous issues, there is a consensus among mainstream political parties on the role of foreign investment in developing the national economy. But the challenge lies in the ground realities, bad governance, an economy in distress, and a transformative phase like the rest of the world.

Notable impediments include bureaucratic hassles, low level of human resource development, uncompetitive energy prices, volatile exchange and interest rates and a high inflation rate. However, the cost of investment will be cheaper in case of maximum use of local talents/professionals and domestic resources owing to the massive fall in rupee value. The depreciating exchange rate of the local currency is a source of deep concern for the incumbent government trying to promote investment.

Pakistan needs to look at the policies that were pursued in the pioneering stage of industrialisation in the 1960s. That included investment schedules with outlines of projects considered feasible in various sectors from which investors could choose. The government may prepare the list of projects in consultation with both domestic and foreign investors to achieve desired objectives.

It may also be necessary to prioritise such projects (with available incentives) to reduce dependence on foreign debts. And it goes without saying that increased foreign trade also opens avenues for boosting investment.

Published in Dawn, The Business and Finance Weekly, September 26th, 2022